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« Investors: Prepare to be deceived on the Europe Story | Main | Recession Forecasting: News from the ECRI »

September 28, 2011


Paul Nunes

Jeff; this blog post and everyone's commentary has been very helpful. THere are no easy answers to these questions; if possible I have counseled clients obvious things (which don't always help!); make sur eyou have cash for liquidity; if things really bother you it makes sense to pay off the mortgage (I have several business clients capable of this); and maybe coupled with some muni bond strategies; there are unleveraged closed end muni funds worth looking at; and then have a balanced allocation. These are good starting points/

Angel Martin

thanks Jeff, i guess it does come down to how one sees europe shaking out.


Alex H


I know you require data before your recession calls, but what do you think about ECRI's statement that we are currently in a recession?


Angel -- If you are willing to do some buying, method 2 just provides a better entry price and/or pays you to wait -- so if #1 is OK, this should be as well.

For new covered write clients I am starting with 1/3 of my recommended positions.

Whether stocks will get cheaper depends on how gloomy you think expectations already are. I do not think that the European situation is going to end with a magic solution where everyone agrees that all is well. Pieces are going to fall into place and improvement will gradually and grudgingly be acknowledged. It may take another year -- certainly months.

To summarize, I have no method for estimating how pessimistic the market can get. Everything I do is based on what is really happening.

And finally -- suppose you are a long-term investor and you decide to wait -- either not buy or sell everything you own. What do you do if the market starts to rebound? You might have a mental "stop loss" on your decision and have the discipline to follow it, but most people will not. For all we know the recent lows could be the bottom of a multi-year rally. It has many of the characteristics including valuation, interest rates, and sentiment.

Good questions -- no easy answers.


Angel Martin

Jeff, I can understand that, based on valuation, long term investors might want to buy here, but I'm not sure I understand strategies that are short volatility (#2,#3) when we are in a situation where volatility may spike even further...

But even for long term investors, why not wait?

Jeff, won't stocks get cheaper until we are at or near the end of the euro drama, however it ends?


One other way, that most people don't have the time for or don't want to do because it is a pain in the butt ... if the market keeps moving like this, a simple moving average cross system using 'some' time frame, used to 'just follow price', buying/selling as price moves above/below the MA cross, works very well, using a stock index ETF or the futures. Works not nearly as well in choppy conditions. The best part about it, IMO, is that you can put the 'news blinders' on and just forget about any fundamental analysis.

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